Method And Apparatus For Evaluating And Monitoring Collateralized Debt Obligations

ABSTRACT

Systems, methods, apparatus, computer program code and means for evaluating and monitoring collateralized debt obligations (CDOs) are provided which include identifying a first investment including interests in a first plurality of assets, identifying a second investment including interests in a second plurality of assets, identifying a common feature associated with both the first and second plurality of assets, and identifying a relative exposure to risk associated with the common feature.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application is a continuation of U.S. patent application Ser. No.10/359,484, filed Feb. 6, 2003, entitled “Method And Apparatus ForEvaluating And Monitoring Collateralized Debt Obligations,” now allowed,the disclosure of which is hereby incorporated by reference in itsentirety for all purposes.

FIELD OF THE INVENTION

The present invention relates to methods and apparatus for evaluatingand monitoring collateralized debt obligations.

BACKGROUND OF THE INVENTION

Collateralized debt obligations (“CDOs”) are financial arrangementswhich have become quite popular in recent years. Generally, a CDO is aspecial purpose investment vehicle which is established to securitizeassets such as corporate bonds, corporate loans or the like. In general,a CDO is created by a party (generally referred to as the “issuer”) tohold a pool of underlying collateral or assets. The issuer then issuessecurities backed by the underlying collateral pool.

The cash flows generated by the underlying collateral are used to payinterest and principal on the issued securities. Each of the underlyingassets have credit risk associated with them (e.g., including defaultand prepayment risk). The well diversified pool of assets providesadditional credit enhancement to the securities issued by the CDO.Credit enhancement is further created by “tranching” the CDO (e.g., thetotal pool of assets may be segmented into pools by taking theunderlying asset cash flows and dividing them among multiple tranches)creating different risk profiles associated with each tranche of theCDO. In this manner, securities are created which satisfy the risk andreward desires of different investors.

Investors invest in the CDO by contracting with the issuer to buyinterests in one or more tranches. An investor may receive periodicinterest and principal payments on the securities. A typical CDOinvestor may hold multiple tranches from one or more issuers.

Reference is now made to FIG. 1, where a simplified example of a typicalCDO investment structure 10 is depicted. In the depicted structure 10,two issuers 12, 14 have each established a CDO (items 16, 26respectively). Each CDO 16, 26 is structured to have multiple tranches18, 20 and 28, 30 which hold interests in a pool of assets or collateralitems. For example, the “ABC CDO” holds a number of underlying assets,including loans and bonds. The two depicted tranches of the “ABC CDO”may be structured to provide different risks based on the underlyingassets (e.g., the “A” tranche may be formed based on senior secured bankloans and/or senior secured bonds).

In the depicted example structure, two investors 22, 24 have contractedwith issuers 12, 14 to purchase securities offered by the issuers.Investor 22 has purchased the securities identified as “Tranche A” of“ABC CDO” from issuer 12, and has also purchased the securitiesidentified as “Tranche A” of “XYZ CDO” from issuer 14. Investor 24 haspurchased securities identified as “Tranche N” of “ABC CDO”. Thisrepresents a typical occurrence in CDO investing: a CDO investor oftenacquires multiple interests in CDOs, often from different issuers (oreven from the same issuer). In the example depicted, this can lead to aninvestor (such as investor 22) holding interests in the same item ofcollateral through different investments. As depicted, investor 22 isexposed to credit or default risk if the asset identified as “Loan 1”defaults (“Loan 1” is included in the A Tranche of both ABC CDO and XYZCDO). Currently, it is difficult for CDO investors to identify suchmultiple exposures.

Because CDO investments often include large numbers of underlyingassets, it can be difficult for a CDO investor to manage and identifyrisks associated with these assets. Each of these assets exposes theinvestor to risks of default or pre-payment. These risks can beevaluated based on a better understanding of each of the assets,industry areas, and issuers.

It would be desirable to provide CDO investors with the ability toaccess information about the asset and issuer and exposure acrossmultiple deals in a timely fashion. It would further be desirable toprovide CDO investors with an ability to perform risk management oftheir investments, including an ability to aggregate exposures acrossdifferent deals. It would further be desirable to provide CDO investorswith an ability to perform modeling of various default and prepaymentscenarios to evaluate their impact across the CDO investor's current (ordesired) portfolio of deals. It would further be desirable to addressdeficiencies in existing CDO evaluation and monitoring tools.

SUMMARY OF THE INVENTION

To alleviate the problems inherent in the prior art, embodiments of thepresent invention provide systems, methods, apparatus, computer programcode and means for evaluating and monitoring collaterized debtobligations (CDOs).

In some embodiments, a method, system, apparatus, computer program codeand means for managing investments is provided which includesidentifying a first investment including interests in a first pluralityof assets, identifying a second investment including interests in asecond plurality of assets, identifying a common feature associated withboth the first and second plurality of assets, and identifying arelative exposure to risk associated with the common feature.

In some embodiments, the common feature is at least one of a commonasset, a common industry, and a common issuer of assets. In someembodiments, where the common feature is a common issuer of assets,embodiments further include modeling a default associated with thecommon issuer, and calculating an impact on the first and said secondinvestments based on the default. In some embodiments, both the firstand second investments are collateralized debt obligation (CDO)investments, and the common asset is at least one of a debt security anda corporate loan.

In some embodiments, each of said first and second plurality of assetsare identified by at least one of a CUSIP number and an assetdescriptor.

In some embodiments, a method, system, apparatus, computer program codeand means are provided which include receiving information identifyingan investor and a first and a second CDO investment held by theinvestor, identifying a first plurality of assets associated with thefirst CDO investment, identifying a second plurality of assetsassociated with the second CDO investment, identifying each of the firstand second plurality of assets using a standardized asset description;and identifying a common asset associated with the first and second CDOinvestments.

According to some embodiments, embodiments further include modeling adefault associated with the common asset, and calculating an impact onthe first and said second CDO investments based on the default.

In some embodiments, a method, system, apparatus, computer program codeand means are provided which include receiving information identifyingan investor and a CDO investment held by the investor, identifying afirst plurality of assets associated with the CDO investment, receivinginformation identifying a desired CDO investment, including a secondplurality of assets associated with the desired CDO investment, andidentifying a common asset associated with the desired CDO investmentand the CDO investment. Some embodiments further include assessing anoverall exposure associated with the desired CDO investment and the CDOinvestment attributed to the common asset.

In some embodiments, a method, system, apparatus, computer program codeand means for monitoring a CDO portfolio include entering informationidentifying a first and a second CDO investment, entering pricingassumption data, and modeling an impact on the first and second CDOinvestments based on the pricing assumption data. In some embodimentsthe pricing assumption data includes data identifying at least one of: adefault rate assumption, a recovery rate assumption, a recovery lagassumption, and a prepayment rate assumption.

With these and other advantages and features of the invention that willbecome hereinafter apparent, the nature of the invention may be moreclearly understood by reference to the following detailed description ofthe invention, the appended claims and to the several drawings attachedherein.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is a block diagram depicting a typical CDO structure which may besupported using some embodiments of the present invention.

FIG. 2 is a block diagram depicting a system including a CDO managementsystem pursuant to some embodiments of the present invention.

FIG. 3 is a block diagram of one embodiment of the CDO management systemof FIG. 2.

FIG. 4 is a flow diagram illustrating an exemplary process for storingand presenting CDO information pursuant to some embodiments of thepresent invention.

FIG. 5 is a flow diagram illustrating an exemplary process forevaluating common exposures in a CDO portfolio pursuant to someembodiments of the present invention.

FIG. 6 is a flow diagram illustrating an exemplary process for analyzinga CDO portfolio pursuant to some embodiments of the present invention.

FIG. 7 is a table depicting a representative investor database for usein the system of FIG. 2 pursuant to some embodiments of the presentinvention.

FIG. 8 is a table depicting a representative CDO database for use in thesystem of FIG. 2 pursuant to some embodiments of the present invention.

FIG. 9 is a table depicting a representative asset database for use inthe system of FIG. 2 pursuant to some embodiments of the presentinvention.

FIGS. 10A-10L depict a number of screen shots of displays generatedusing some embodiments of the present invention.

DETAILED DESCRIPTION OF THE INVENTION

Applicants have recognized that there is a need for a system, method,apparatus, computer program code, and means for evaluating andmonitoring CDOs. For example, embodiments allow a CDO investor (orpotential investor) to interact with a CDO management system to evaluatethe investor's current or prospective CDO investments (e.g., to identifyareas of over-exposure to individual assets, to price various scenarios,etc.). CDO investors may also utilize features of embodiments to manageexisting portfolios.

For clarity, a number of terms are used herein to describe features ofsome embodiments of the present invention. For example, as used herein,the term “CDO” means a debt or equity security collateralized by debtobligations. The debt obligations may include, for example, commercialloans, commercial bonds, mortgages, or the like. As used herein, theterm “CDO” is used to generally refer to a structured financetransaction in which one or more tranches of debt or equity securitiesare issued by a special purpose vehicle (“SPV”) established havingassets consisting of the debt obligations. A CDO may hold a number ofassets selected to provide diversification of the securities issued bythe SPV. A CDO may include a number of tranches which are established toprovide further diversification and to provide a single risk-returnprofile. Details of the structuring and administration of CDOs aredescribed in “Investing in Collateralized Debt Obligations”, Frank J.,Ph.D. Fabozzi et al. (Eds.), John Wiley & Sons, 1st edition (May 2001),the contents of which are incorporated herein by reference in theirentirety for all purposes.

As used herein, the term “investor” is used to refer to an individual orentity which contracts with a CDO issuer or administrator to acquiredebt or equity securities issued by the CDO.

As used herein, the term “asset” is used to refer to an obligation heldby a CDO as collateral for securities issued by the CDO. An “asset” maybe, for example, a bond, a loan, a mortgage, or other assets held by aCDO. In general, an asset held by a CDO may be identified by an assetname, a securities identifier (such as a “CUSIP number” used to refer tosecurities identifiers which conform to rules promulgated by theCommittee on Uniform Securities Identification Procedures or a “ISIN”used to refer to international securities identification numbers), orthe like. Each asset is associated with an “issuer” of the asset. Forillustrative purposes, a CDO which holds a number of commercial bondsmay hold a commercial bond referred to as “AdelphiaCommunication—9.375%, 11/2009” which is issued by “AdelphiaCommunication” (referring to a commercial bond having a coupon of 9.375%and having a maturity date of 11/2009). The commercial bond may also bereferred to by its ISIN (in the example, the ISIN for the bond is U.S.006848BE48). As used herein, each “issuer” of an “asset” held by a CDOmay be identified by a number of items of information, including, forexample, by its name, industry code, or the like.

As used herein, each investor may hold one or more interests in CDOs.Each CDO investment held by an investor may be referred to herein as aparticular “deal” associated with the investor. If an investor hasseveral CDO interests (several “deals”), the total set of interests willgenerally be referred to herein as the investor's “portfolio”. As willbe described further herein, embodiments allow investors to analyze andmanage existing their existing portfolios. Embodiments further allowinvestors to analyze and manage potential CDO investments (e.g., toevaluate the impacts of adding further CDO investments—or “deals”—totheir current portfolio). As used herein, an investor's potentialportfolio is referred to as the investor's “hypothetical portfolio”. A“hypothetical portfolio” may include one or more current CDO investmentsheld by the investor (i.e., the investor's “portfolio”) as well as oneor more potential CDO investments. Embodiments allow CDO investors toanalyze and manage their existing portfolios as well as theirhypothetical portfolios (e.g., to aid the CDO investor in selectingavailable CDO investments which achieve an overall portfolio havingdesired characteristics).

Introductory Example

Prior to a detailed description of various features, an illustrativeexample of some features of embodiments of the present invention willfirst be set forth. This example is not intended to be limiting. In theexample, a CDO investor holds securities issued by two different CDOissuers (e.g., the investor has securities from the “Tranche A” of “ABCCDO” and “Tranche B” of the “XYZ CDO” depicted in FIG. 1). Each trancheincludes a large number of assets issued by a large number of issuers.The investor first wishes to monitor and evaluate its holdings (itscurrent “portfolio”) and operates a computing device to access a CDOmanagement system configured pursuant to embodiments of the presentinvention. In accessing the CDO management system, the investor may berequired to identify itself and identify the two CDOs (and tranches) inwhich it holds a position. In some embodiments, details regarding theinvestor's current portfolio are previously stored by the CDO managementsystem. For example, the investor may simply identify itself to a CDOmanagement system and the two current deals associated with the investorwill automatically be identified by the CDO management system.

The investor may then direct the CDO management system to identify allfeatures which are common to both the “ABC CDO” and the “XYZ CDO”tranches that it holds. For example, the system may determine that alarge amount of WorldCom, Inc. corporate loans are held in both CDOtranches (i.e., the investor may request that the CDO management systemidentify common assets or common issuers between the two CDOs). Prior tothe introduction of the present invention, it was difficult for CDOinvestors to readily identify such holdings across different CDOinvestments. The investor may be concerned that its current portfolio,which includes multiple holdings in WorldCom, Inc. corporate loans,presents undue credit risks and may determine that some correctiveaction should be taken (e.g., by changing its position or by furtherdiversifying its holdings by taking positions in CDOs which do notinclude WorldCom, Inc. corporate loans, etc.).

As a second example, the investor may interact with the CDO managementsystem to analyze whether a “hypothetical portfolio” of CDO investmentsis desirable. In this example, the investor may interact with the CDOmanagement system to identify one or more CDO investments (which mayinclude current CDO investments held by the investor, or it may includepotential CDO investments to be evaluated by the investor). For example,the investor may not currently hold a position in either “ABC CDO” or“XYZ CDO”, and may wish to evaluate whether an investment includingtranches from both CDOs is desirable. After identifying tranches of bothCDOs, the investor may interact with the CDO management system toperform one or more pricing analyses. The investor may also interactwith the CDO management system to identify non-performing bonds or loansin default. The investor may further interact with the CDO managementsystem to identify common features included in the hypotheticalportfolio (e.g., to identify the total exposure to assets or issuers ofconcern). In this manner, CDO investors are able to proactively evaluateand manage both existing and potential CDO investments.

System/Device Description

Features of some embodiments will now be described by reference to FIG.2, where a system 100 is depicted. System 100 includes a number ofdevices in communication with each other via, for example, a network105. As depicted, system 100 includes a CDO management system 102, anumber of user devices 104, one or more CDO data sources 106 and one ormore pricing tools 108. Some or all of the devices may be operated by oron behalf of different entities. For example, in some embodiments, CDOmanagement system 102 is operated by or on behalf of a CDO serviceprovider, such as a broker, an underwriter, an issuer, or other entitywhich provides CDO management and analysis information to a number ofusers (e.g., such as CDO investors operating user devices 104). As willbe described further below, CDO management system 102 may be configuredas a network server or other device which may be accessed by one or moreauthorized users to perform CDO management and analysis using featuresof embodiments of the present invention.

User devices 104 may be computers or other devices configured tointeract with CDO management system 102. For example, user devices 104may be personal computers, laptops, PDAs, wired or wireless telephones,or other devices. Further details of a CDO management system 102 isshown at FIG. 3, described below. Similarly-configured devices may beused for other devices of the system of FIG. 2.

CDO data source(s) 106 may be data sources operated or provided byservice providers which generate CDO data, such as, for example, thedata sources provided by Standard & Poors® (a division of McGraw-Hill,Inc.), Moodys Investor Services®, Fitch, or the like. Data provided bydata sources 106 may be utilized to populate one or more databasesutilized by CDO management system 102. For example, CDO data from datasources 106 may be used to develop a CDO database which identifiescurrent assets, issuers, and other information associated withindividual CDOs. CDO data from data sources 106 may also include rating,risk and pricing data regarding individual assets, issuers and CDOs. Forexample, rating data may be retrieved from various sources (e.g.,indicating an overall rating associated with a particular asset asprovided by a rating agency such as Standard & Poors). Similarly, ratingdata may be retrieved for individual CDO deals or tranches. Data fromCDO data source(s) 106 may be retrieved on a regular basis or as needed.This data may be retrieved electronically (e.g., via the Internet), byphysically entering the data into CDO management system 102, or usingother means.

Pricing tools 108 may include CDO pricing tools provided by serviceproviders which price CDOs. For example, pricing tools 108 may includeCDO pricing tools such as: the high yield bond pricing tools provided bythe Electronic Joint Venture (EJV), loan pricing information provided bythe Loan Pricing Corporation, trading desk pricing information (e.g.,such as those collected by the trading desks operated by the Goldman,Sachs Co.), pricing information provided by CDO collateral managers,credit risk assessment information provided by CreditGrades, ratingupdate information provided by Standard & Poors, Moodys InvestorServices or the like, risk information provided by KW (operated byMoodys Investor Services) or PACE, and other sources of pricing, risk,or other information.

In some embodiments, system 100 may be configured as a computer-basedsystem. For example, in some embodiments, CDO management system 102 maybe configured as a computer server which may be accessed over network105 by a number of users operating user devices 104 a-n. In someembodiments, CDO management system 102 is configured as a Web serverwhich may be accessed by user devices 104 a-n via a network such as theInternet.

Embodiments allow investors, or agents of investors, to interact withCDO management system 102 to manage and analyze CDO investments.

Any number of entities, devices, data sources or pricing tools (e.g.,such as devices 102 or 104) may be provided in system 100. Communicationbetween devices 102-104, data sources 106 and pricing tools 108 may bedirect or indirect, such as over the Internet through a Web sitemaintained by a remote server or over an on-line data network includingcommercial on-line service providers, bulletin board systems and thelike. For example, in some embodiments, CDO management system 102 may beoperated as a central service to facilitate the management and analysisof CDO investments for a large number of investors. In some embodiments,CDO management system 102 may be operated as a private or internalservice to facilitate the management and analysis of CDO investments forclient investors, for a small group of investors, or even for a singleinvestor.

Any of a number of different types of networks or communicationstechniques may be used to facilitate communication between (and within)entities operating devices 102 and 104 (as well as pricing tools anddata sources). For example, communication may be via a Local AreaNetwork (LAN), a Metropolitan Area Network (MAN), a Wide Area Network(WAN), a proprietary network, a Public Switched Telephone Network(PSTN), a Wireless Application Protocol (WAP) network, a wireless LAN(e.g., in accordance with the Institute of Electrical and ElectronicsEngineers 802.11 standard), a Bluetooth network, an Infrared Radiation(IR) network, and/or an IP network such as the Internet, an intranet oran extranet. As used herein, the term “communications” can refer towired and/or wireless communications as appropriate. Note that thedevices and entities communicating as shown in FIG. 2 need not be inconstant communication.

Referring now to FIG. 3, some devices used in conjunction with thepresent invention (such as, for example, CDO management system 102)include one or more input devices 140, one or more communication devices120, one or more output devices 150, one or more storage devices 130,all of which are in communication with one or more processing devices110 to perform processing pursuant to embodiments of the presentinvention.

Communication device 120 may be used to facilitate communication with,for example, other devices (such as client devices 104, CDO data sources106 and pricing tools 108). Input device 140 may comprise, for example,a keyboard, a keypad, a mouse or other pointing device, a microphone,knob or a switch, an infra-red (IR) port, a docking station, and/or atouch screen. Input device 140 may be used, for example, to enterinformation (e.g., information regarding CDO investors, CDO investments,individual assets, or the like). Output device 150 may comprise, forexample, a display (e.g., a display screen), a speaker, and/or aprinter.

Storage device 130 may comprise any appropriate information storagedevice, including combinations of magnetic storage devices (e.g.,magnetic tape and hard disc drives), optical storage devices, and/orsemiconductor memory devices such as Random Access Memory (RAM) devicesand Read Only Memory (ROM) devices.

Storage device 130 stores one or more programs 115 for controllingprocessor 110. Processor 110 performs instructions of program 115, andthereby operates in accordance with the present invention. In someembodiments, program 115 may generally be configured as a program usingtechniques known to those skilled in the art to achieve thefunctionality described herein. For example, program 115 may be coded toperform some or all of the steps of the processes or interfaces depictedherein (e.g., such as the processes described in conjunction with FIGS.4-6 and/or the user interfaces described in conjunction with FIGS.10A-10L). As a more particular example, program 115 may be coded toallow clients to interact with CDO management system 102 to identify CDOinvestments, to identify assets, to price CDO scenarios, to manageexisting portfolios, to evaluate hypothetical portfolios, etc.

Storage device 130 may also store one or more databases, including, forexample, databases including information identifying CDO investors,CDOs, assets, o other databases necessary or useful in evaluating,pricing, managing, analyzing or otherwise maintaining CDO investmentspursuant to embodiments of the present invention.

Process Description

Various processes which may be implemented using CDO management system102 will now be described. Reference is first made to FIG. 4, where aflow diagram 200 is shown. The individual process steps of flow diagram200 (and other process steps described herein) are not intended to implya specific set order; rather, those skilled in the art will appreciatethat the process may be performed in any order practicable.

Process 200 begins at 202 where a database of CDO information iscreated. This database of CDO information may be stored at, oraccessible to, CDO management system 102. This database may becontinually updated to reflect current CDO information. For example, thedatabase may be updated each time a new CDO issue is identified. Asanother example, the database may be updated each time a CDO investor isidentified who wishes to utilize CDO management system (an exampleinvestor database is shown at FIG. 7 depicting exemplary informationwhich may be stored for each investor utilizing CDO management system102).

When a new CDO investor is identified, the CDO investor's CDO portfoliomay be identified and information regarding the deals that are includedin the portfolio may be included in the database created at 202. Anexample CDO database is shown at FIG. 8. As depicted in FIG. 8, CDOdatabase 400 may include CDO data such as, for example, an identifierused to identify individual CDOs, tranche identifiers, CDO descriptions,other identifiers (such as CUSIPS or other data), ratings information,settlement information, collection information, pricing information,etc.

Information may also be stored identifying individual assets associatedwith each CDO investment. For example, referring briefly to FIG. 9, adatabase may be created which identifies individual assets held by eachCDO. The CDO asset database 500 may include information such as: anidentifier of the CDO each asset is associated with (e.g., correspondingto the CDO identifier of FIG. 8); the associated tranche; an assetdescription; an issuer of the asset; other information identifying theasset (e.g., such as a CUSIP); a coupon, maturity, balance, type, statusof the asset; an industry of the asset; and other information generallyused by those skilled in the art to identify and analyze assetsassociated with CDOs. The information entered into databases (such asthe databases of FIGS. 6-8) may be retrieved from a number of sources.For example, some or all of the information may be retrieved from datasources 106. As a particular example, data may be retrieved from CDOissuers or collateral managers when a CDO is established. Data may alsobe retrieved from commercial information sources such as the datasources provided by Intex Solutions, Inc. or the like.

Referring again to FIG. 4, processing continues at 204 where asset andissuer information stored at 202 are normalized. In some embodiments,this may require data entry or other processing to ensure thatinformation stored at 202 are stored in a consistent manner.

For example, issuers of CDOs often issue prospectus or documentationwhich describe the assets held in each CDO tranche. Often, thisinformation is inconsistent. For example, two CDO issuers who issue CDOswhich hold the same asset may refer to that asset differently. As aspecific example, a first CDO issuer may refer to a particular corporatebond as “Global Crossing Ltd., 9.125%, Nov. 15, 2009”, while a secondCDO issuer may refer to the same corporate bond as “Global CrossingHoldings Limited, 9.125%, 11/2009”. Embodiments utilize processing (suchas processing at 204) to normalize this information. For example, insome embodiments, data entered at 202 may be reviewed to ensure thatasset information is entered in a consistent manner. In the example,information identifying the corporate bond in both CDOs will be updatedto identify it consistently in both CDOs. In some embodiments, this isperformed using a rule-based system to enforce consistent terminology(e.g., all corporate bonds issued by Global Crossings will be identifiedas being issued by “Global Crossing Hldg Ltd”; similarly, all corporatebonds will be referred to by their month and year of maturity).

Processing continues at 206 where the normalized CDO information is madeavailable (e.g., the information may be provided to CDO investorsincluding CDO investors operating user devices 104, the information mayalso be provided to CDO managers or other interested entities orindividuals). As will be described further below, this information maybe presented to investors to allow them to manage or analyze existingportfolios or to manage or analyze hypothetical portfolios.

Reference is now made to FIG. 5, where a process 220 is depicted foranalyzing a CDO investor's current portfolio. Process 220 may also beutilized to analyze a CDO investor's hypothetical portfolio. Process 220may involve interaction between CDO management system 102 and aninvestor (or an agent of an investor) operating a user device 104.

Process 220 begins at 222 where a CDO investor is identified. Forexample, processing at 222 may involve a CDO investor operating userdevice 104 to interact with CDO management system 102 to begin a sessionwith CDO management system 102. For example, in a Web-based environment,a CDO investor may direct a Web browser of user device 104 to access aWeb-site maintained by (or on behalf of) CDO management system 102. TheCDO management system 102 may require the CDO investor to identifyitself (e.g., using password or other security techniques to uniquelyand securely identify the investor). Processing at 222 may includeretrieving CDO investor information from a database, such as investordatabase 300 of FIG. 7.

Processing continues at 224 where CDO investments associated with theCDO investor identified at 222 are retrieved. For example, after a CDOinvestor is identified, information may be retrieved from database 300(see FIG. 7) identifying those CDO deals in which the investor currentlyholds a position. As a specific example (referring briefly to FIG. 7),if the investor is identified as having investor identifier “1-1001”,processing at 224 may include retrieving information from database 300indicating that the CDO investor holds positions in three different CDOs(i.e., the investor's portfolio consists of holdings in “CDO-0001”,“CDO-0002”, and “CDO-0010”, including tranches A, A, and C,respectively). In some embodiments, processing at 224 may includeallowing the CDO investor to select a desired CDO investment (orinvestments) to add to a “hypothetical portfolio”. For example, the CDOinvestor may be presented with a menu of available CDO investments forwhich data is available. The CDO investor may selectively choose one ormore of these available investments to construct a hypotheticalportfolio for analysis.

Processing continues at 226 where assets and data associated with eachof the CDO investor's portfolio (or hypothetical portfolio) areidentified. For example, this may include retrieving information from adatabase such as the CDO database 400 depicted in FIG. 8. In thespecific example introduced above, CDO information from database 400 maybe retrieved for CDO-0001 (tranche A), CDO-0002 (tranche A), andCDO-0010 (tranche C) as they were identified as being included in theCDO portfolio held by the investor identified as “1-1001”. Thisinformation may be presented to the investor (e.g., on a display deviceof user device 104) for its review.

Processing continues at 228 where the investor operates user device 104in conjunction with CDO management system 102 to identify commonfeatures which exist in its portfolio (or hypothetical portfolio). Anumber of different types of common features may be identified usingembodiments of the present invention, including common assets, commonissuers, common industries, etc. For example, the CDO investor maydesire to identify those assets which are held in each of the CDO's inwhich it has an interest. As a further example, the CDO investor maydesire to identify those issuers of assets which are represented in eachof the CDOs in which the investor has an interest. As a still furtherexample, the CDO investor may wish to identify those industry areaswhich are represented in each of the CDOs in which the investor has aninterest. In this manner, the CDO investor may efficiently and quicklyidentify areas of potential overexposure or risk.

Processing continues at 230 where the CDO investor may utilize featuresof embodiments of the present invention to assess relative exposures tothe identified common features. For example, the CDO investor may wishto identify how large a portion of its total CDO holdings are exposed to“WorldCom, Inc.” corporate bonds. The CDO investor may also wish toidentify how large a portion of its total CDO holdings are based onholdings in a particular industry. For example, the CDO investor may beparticularly concerned with the stability of companies in thetelecommunications industry, and may wish to quickly assess the extentof its CDO portfolio which is based on bonds or loans issued bycompanies in this industry. Other analyses and assessments may also beperformed.

Reference is now made to FIG. 6, where a further flow diagram 250 isdepicted which depicts a general flow for analyzing a portfolio (or ahypothetical portfolio) using features of embodiments of the presentinvention. Process 250 begins at 252 where a CDO investor (e.g.,operating user device 104 to interact with CDO management system 102)identifies a CDO portfolio for analysis. Processing at 252 may involvesimply identifying a CDO investor's current holdings (e.g., byretrieving data from investor database 300 of FIG. 7), or it may involveinteraction in which the CDO investor creates a hypothetical portfolioconsisting of one or more potential CDO investments and/or existingholdings of the CDO investor.

Processing continues at 254 where the CDO investor interacts with CDOmanagement system 102 to select one or more scenarios (such as pricingor default scenarios) to be applied to the portfolio selected al 252.Embodiments of the present invention allow the selection of a number ofdifferent scenarios which may be quickly and easily applied to aselected portfolio. For example, the scenarios may apply various defaultassumptions to a portfolio. As a specific example, the investor mayselect (or create) a scenario in which all bonds and loans associatedwith WorldCom, Inc. go into default or are non-performing. As anotherexample, the investor may identify a number of generic attributes of apricing scenario, including: a default rate, a prepayment rate, arecovery rate, and recovery log timing for individual assets or forgroups of assets. Assets may be grouped in various groupings, including,for example: groups of defaulted assets, groups of “CCC”-rated assets;and groups of performing assets. In some embodiments, the scenario maybe further controlled to allow specification of any monthly defaults(e.g., by applying the same default rate to an outstanding asset balanceevery single month).

Processing continues at 256 where the selected scenario(s) areperformed. For example, if the investor has constructed a scenario whereall bonds and loans associated with WorldCom, Inc. are in default or arenon-performing, processing at 256 may include determining the overalleffect of the scenario on the portfolio constructed at 252. A portfoliowhich includes one or more CDO investments having a large exposure toWorldCom, Inc. obligations will be negatively affected by the scenario.Performance of the scenario at 256 may result in the indication of anoverall impact of the scenario on the portfolio so that the investor cananticipate, or model, potential risk scenarios. In some embodiments,processing at 256 may result in the generation of a cash flow projectionfor each asset in the portfolio. Other pricing variations may also beused in conjunction with embodiments of the present invention, therebyallowing investors and other users to model a variety of events and topredict various effects on cash flow and CDO portfolio performance.

In some embodiments, scenarios may be applied through user interfaceswhich are created to assist in the ready application of specificscenarios. For example, in some embodiments, a “scenario analyzer” toolmay be utilized which allows the application of various default andprepayment scenarios to selected deals. For example, the tool may resultin the generation of a number of relevant data points for each selecteddeal, including: average life, a principal window, various investmentrates of return, final maturity information, etc. By providing a tool toimplement these scenario analyses, users may easily apply the analysesin an efficient manner without undue data entry requirements.

As another example, in some embodiments, a “deal analyzer” tool may beutilized which allows users to readily perform price-yield calculationsover a wide range of defaults, recovery and prepayment assumptions.Input variables may include data identifying different groupings ofassets (e.g., such as all bonds or loans not in default, or all bonds orloans in default, etc.), the number of input values, pricingassumptions, etc. The output is a price-yield matrix which may provideusers with information regarding their total return based on differentassumptions. Other tools and structured analyses screens may also beprovided to assist users in analyzing the data generated by CDOmanagement system 102.

The normalized CDO information provided using embodiments of the presentinvention may be provided to users in a number of different ways and ina number of different formats. For example, in some embodiments,specific CDO information may be displayed to a user on a display deviceof a user device 104. In some embodiments, CDO reports may be outputfrom CDO management system 102 to other devices or in hard-copy form foruse by CDO investors or others. As particular examples, regular orperiodic risk and issuer exposure reports may be generated using CDOdata from CDO management system 102. In this manner, reports may begenerated which allow investors to examine their underlying exposures ata glance, allowing them to quickly gauge a deal's performance based on avariety of coverage and quality tests to identify issues such as adeal's top exposures and most distressed holdings.

As an example, a risk report for a particular CDO deal may includeinformation such as: a detailed defaulted asset list (identifying issuesby balance, rating, price, and information regarding the extent of theexposure in a deal); a detailed list of issues by rating; the results ofdifferent coverage tests (and whether the deal passes or fails eachtest); the amount of issues in default (as well as their overallproportion in the deal); asset pricing information; top issuerinformation; top industry information, and other information allowing auser to quickly assess various risks associated with a particular CDOinvestment.

As another example, an issuer exposure report for a particular CDO dealmay include information such as details regarding each issuer associatedwith the deal, details regarding overall industry exposures, and otherinformation allowing an investor to quickly assess its overall exposureto particular issuers and industries. Other types and combinations ofreports may be generated on behalf of users using CDO management system102. In some embodiments, the reports may be automatically generated ona periodic or regular basis. In some embodiments, the reports may beautomatically generated once certain trigger events occur (e.g., such aswhen a certain number of defaults or a certain percentage of defaultsoccur). In some embodiments, the reports may be generated electronicallyin a format which is readily useable by systems of particular users(e.g., some users may utilize trading and analysis systems having aparticular format).

In some embodiments, users may desire that cashflow data be generated,allowing the user to perform pricing or other analyses of itsinvestments. For example, in some embodiments, users may be presentedwith the option of generating cashflow data for selected CDOinvestments. In some embodiments, users may be provided the option ofgenerating the cashflow data in different formats. For example, in oneembodiment, users may select between cashflow data generated inso-called “CSV” format (with commas delimiting each value), and cashflowdata generated in a format compatible with trading devices manufacturedby Bloomberg®. In this manner, users may generate files of cashflow datawhich are compatible with their trading and accounting systems, allowingthe cashflow data to be readily imported into the other systems. ManyCDO investors wish to maintain updated cashflow information on a regularbasis (e.g., such as monthly). Embodiments allow accurate cashflowinformation to be easily created without the extensive manual,repetitive and error-prone processing required in previous systems. Insome embodiments, the cashflow data can be generated by simply selectingan option to generate cashflows (e.g., without further data entry).Those skilled in the art, upon reading this disclosure, will appreciatethat other reports, screens, and data files may be readily generatedusing embodiments of the present invention.

User Interface

Reference is now made to FIGS. 10A-10L, where a variety of userinterfaces are depicted which may be generated by CDO management system102 and displayed, for example, on a display device of user device 104.In the embodiment depicted, a number of user interfaces are shown whichare configured for display on a display device in a Web-basedenvironment (e.g., where a user operates a user device equipped with aWeb-browser which may be directed to a Web-site offering services orfunctions of embodiments of the present invention). Those skilled in theart will recognize that other display and interaction configurations mayalso be used to permit interaction between a user and CDO managementsystem.

Referring now to FIG. 10A, a screen 1000 is depicted which may bedisplayed on display device for viewing and interaction by a user suchas a CDO investor or the like. The screen 1000 of FIG. 10A depicts anexample of a deal selector screen which may be presented to a user afterthe user selects a [File] command from the top portion of the userinterface. A drop down menu may be used, e.g., to present options, oneof which may be the option to load a particular deal (or deals). Anumber of available deals may be presented (as depicted in FIG. 10A).Deals (or more particularly, in some embodiments, specific tranches ofCDO deals) may be selected by identifying the deal and then the trancheof interest. In some embodiments, by selecting a particular tranche, CDOmanagement system 102 may retrieve data regarding that tranche andpresent that deal in a separate tab on the display. In some embodiments,multiple deals and tranches may be selected to create a portfolio ofinterest.

Referring now to FIG. 10B, a further screen 1010 is depicted which maybe displayed on a display device for viewing and interaction by a user.The screen 1010 of FIG. 10B depicts a main portfolio screen whichdisplays a summary of the selected portfolio, including the selectedtranches and the underlying assets which are associated with thosetranches. Users may interact with a screen such as the screen of FIG.10B to price the portfolio (e.g., by filling in the scenario section,choosing the scenario as the base case scenario, and then selecting the“Pricing” option and the “Price Deals” option).

As shown in the screen of FIG. 10B, the display area may be configuredwith several sections. In the embodiment depicted, the display isconfigured with three primary sections: a top section 1012 displaying“deal information” (or, details regarding each of the CDO tranches in auser's portfolio or hypothetical portfolio); a middle section 1014displaying “static” information (having multiple tabs that contain someunique information about each CDO tranche in the user's portfolio orhypothetical portfolio, which information does not change despitechanges in pricing or other scenarios); and a bottom section 1016displaying “dynamic” information (having multiple tabs that containvariable data that allows a user to perform pricing and other scenariosand view their impact on their portfolio or hypothetical portfolios).Those skilled in the art will appreciate that other formats and use ofscreen space may be utilized to display information; the depictedembodiment is one suitable approach.

Each of the sections of the screen of FIG. 10B may provide detailsregarding CDO deals. For example, the top screen section 1012, specificselected deals and tranche information associated with a user'sportfolio are displayed. Buttons allow a user to select or deselectindividual tranches for pricing analyses. In general, in the depictedembodiment, the screen of FIG. 10B provides a user with a completepricing summary of the user's portfolio (or hypothetical portfolio). Inthe depicted embodiment, the user may view the entire portfolio orindividual tranches (e.g., as shown, the user has selected to view alldeals associated with his portfolio, displaying deal information,pricing information, and static analysis data for each deal in theportfolio).

The middle section 1014 includes information about the selectedportfolio, including information displayed by issuer, by asset, byratings (e.g., such as Moodys and S&P), etc. Each of the screens may besorted by different columns (e.g., the portfolio by issuer may be sortedby issuer name, by balance, or by percentage). The bottom section 1016includes dynamic information such as the scenario data depicted. Byinteracting with the scenario data, a user may select the application ofdifferent pricing or analysis scenarios and view scenario dataassociated with those analyses. In this manner, a user can efficientlyand easily evaluate and assess risks and opportunities associated withdifferent investments.

Referring now to FIG. 10C, a further screen is depicted which shows afurther embodiment of a screen display 1018 from the middle section ofFIG. 10B (the section presenting static information about the user'sportfolio). In particular, the screen shows information regarding theuser's portfolio, sorted by issuer of assets. For example, the screenmay be used to show a user the composition of his portfolio, by issuer.In the depicted example, the user's portfolio is heavily weighted inassets issued by Nextel Communications Inc. (Nextel is represented inabout 25 deals associated with the user, and represents on the average1.5% of each asset pool comprising the user's portfolio). In someembodiments, each of the issuers are identified by a name which has beennormalized to ensure that each issuer is identified by a single,consistent name. In this manner, users can accurately and efficientlymonitor the effect of individual issuers on their holdings. Other staticinformation may also be presented. Each of the available screens in thestatic information section may be presented for the user's totalportfolio (or hypothetical portfolio) or for individual tranches of theuser's portfolio (or hypothetical portfolio).

Referring now to FIG. 10D, a further static information screen 1020 isshown which presents a user with information about his portfolio (orspecific tranches) by individual assets. In the depicted example screen,the assets are shown listed in alphabetical order including informationabout the total portfolio balance based on each asset and the percentageof the total portfolio based on each asset. Each asset may be identifiedbased on its identifier (e.g., such as its CUSIP or LIN or the like). Asa result, the assets may be segmented into types (e.g., bonds vs.loans). Further segmentation may be provided between the facility orissue series. In this manner, different issues or facilities provided bya single issuer may be specifically identified for analysis andmonitoring.

Referring now to FIG. 10E, a further static information screen 1022 isshown which presents a user with information about his portfolio (orspecific tranches) by Moodys Investor Services a® ratings and data.Similar screens may be viewed which show similar information relating toStandard & Poors® ratings and data or the like. Referring now to FIG.10F, a further static information screen 1024 is shown which presents auser with information about his portfolio (or specific tranches) byMoodys Investor Services® in dollars. These screens may be used by auser to view the industry classification of underlying assets as well astheir current credit ratings. In some embodiments, the data is retrievedon a regular basis from external data sources to ensure that the datareflects current pricing and rating data from the external sources. Thisscreen may be used to view risk exposure to a particular industry and toview the credit spectrum of a particular industry.

Other static information may be presented. For example, the user'sportfolio (or hypothetical portfolio) by issuer, by deal may be providedto show a more detailed view of the user's portfolio by issuer (e.g.,providing an aggregated exposure to a single issuer as well as the dealsthat have exposure to that issuer). This allows a user to quickly andaccurately view a summary of deals which are most heavily exposed to asingle name default risk. Other static information may include dataidentifying portfolio overlaps. For example, this information may beused to determine how similar different portfolios are (e.g., toidentify whether two portfolios have high correlations which may resultin an unreasonably high risk of default that could adversely affectmultiple portfolios).

As mentioned in conjunction with FIG. 10B, “dynamic” information mayalso be presented in a third portion of a display presented to users.FIGS. 10H-10L depict various screens displaying dynamic informationgenerated and presented pursuant to some embodiments. Referring first tothe bottom section 1016 of FIG. 10B, a dynamic data screen is depictedwhich shows a variety of options available to a user, allowing the userto select various scenarios to be applied to the user's portfolio,hypothetical portfolio, or individual tranches. For example, a user mayperform complex issuer-level default probability scenarios and apply thescenarios to every other asset within the user's portfolio, hypotheticalportfolio or tranches. For example, if an investor becomes aware that aparticular issuer (e.g., such as Polaroid Corp.) has just declaredbankruptcy, the investor may utilize features of embodiments of thepresent invention to quickly assess the overall impact of the bankruptcyon the investor's CDO portfolio. This may be performed by selectingPolaroid Corp. in the “issuer level” screens for application of ascenario, specify the default rate and recovery rate assumptions forPolaroid Corp., and run the scenario. Embodiments of the presentinvention allow such a scenario to be applied to all CDO investmentswhich include Polaroid Corp. as an issuer.

The dynamic screen section 1016 depicted in FIG. 10B allows a user toquickly and consistently apply a wide variety of pricing scenarios. Forexample, three separate groups control the cash flow projection of CDOassets: a group of assets that are currently in default, a group ofassets that are currently rated Caa3 or below, and the group ofremaining assets. Within these groups, assets are further divided intobonds and loans. These groups may then be controlled using, for example,four parameters: default rate assumption; recovery rate assumption;recovery lag assumption; and prepayment rate assumption. Embodimentsallow users to quickly modify, define, and apply these variousparameters. For example, a user may be provided with options to controlpricing of a deal to the first par-call date, to default any“non-monthly” assets on a monthly basis, etc. The screen of FIG. 10Bdepicts one embodiment for allowing user interaction in pricingscenarios.

As depicted in FIG. 10H, a screen 1028 displays asset level dynamic. Asshown, the user is displayed information including a list of all assetsthat are underlying a selected deal or tranche. Check boxes are providedto override scenarios or to force cash flow projections. In oneembodiment, if no assets are selected, each asset in the tranche or dealwill be analyzed for its own cash flow projection using the currentlyselected scenario. If the scenario is overridden for a particular asset(or assets), those selected assets may be analyzed using a custom cashflow projection. In some embodiments, the user may apply scenarios whichcontrol every asset's default rate, recovery rate, prepayment rate, andrecovery lag timing. Further, the user may specify a vector rather thanuse of a single number (e.g., the user may efficiently create and applyscenarios by creating a custom default vector).

Reference is now made to the screen of FIG. 101, where a test scoresscreen 1030 is depicted which may be presented in the dynamicinformation area of a user display device. As depicted, this screenincludes the results of various coverage tests and quality tests thathave been performed on a particular tranche for the current month. Forexample, this screen may present information such as: the par valuetests, interest rate coverage tests, diversity score tests and ratingfactors tests. Further, the screen may present current test scores ascalculated by a trustee of the tranche, the required threshold and theresult of the test. Information supporting this screen may be retrievedon a regular basis from various data sources.

Reference is now made to FIG. 10J, where a reinvestment screen 1032 isshown (which may be presented in the dynamic information section of thedisplay). In some embodiments, CDO management system 102 may beconfigured to automatically assume that any unscheduled cash flows willbe reinvested during reinvestment periods. However, in some embodiments,users may specify particular reinvestment scenarios. For example, a usermay select a combination of bond and loans from a deal both inpercentage allocation between the two as well as the purchase price paidfor those asset categories. Further, hypothetical pricing scenarios mayalso be performed to predict future reinvestment options.

Reference is now made to FIG. 10K, where a test results screen 1034 isshown (which may be presented in the dynamic information section of thedisplay). For example, the screen may display the results of allcoverage tests and some quality tests that are calculated during thecash flow analysis. The most recently run cash flow scenario is used todetermine the results of these tests. Reference is now made to FIG. 10L,where a tranche cash flow screen 1036 is depicted which shows theresults of the latest scenario run. All tranches selected on the mainscreen may be presented with their own tabs in some embodiments. In someembodiments, a user may be provided with the option to show only thepayment months' cash flows. In some embodiments, the user may beprovided with the option to show all monthly cash flows. Similar screensmay be provided to display asset cash flow information.

Other screens may also be provided to assist a user in performing otherfunctions and/or to present data in a useful format. For example, otherpricing screens may be provided to interface with or utilize pricingtools such as the pricing tools provided by Moodys Investors Services(e.g., such as tools using Moody's “Binomial Expansion Technique”analysis which is used to rate new issue deals with their appropriaterisk rating). Embodiments allow the application of a variety of pricingand analysis tools to portfolios even after the CDO has been issued,allowing an investor to monitor whether deals can hold their rating if,for example, a particular tranche were to be re-rated in the secondarymarket after some aging. In this manner, investors can continuallymonitor the performance of their portfolios (and analyze the performanceof hypothetical portfolios) based on a number of pricing and analysistechniques. Other screens may be presented to allow users to generatethe reports or other outputs discussed above.

Each of the display screens described above are presented for thepurposes of illustration only; those skilled in the art will appreciatethat other screen configurations and formats may also be utilized inconjunction with embodiments of the present invention. Although thepresent invention has been described with respect to a preferredembodiment thereof, those skilled in the art will note that varioussubstitutions may be made to those embodiments described herein withoutdeparting from the spirit and scope of the present invention.

1. A method for managing investments, comprising: identifying a firstinvestment including interests in a first plurality of assets;identifying a second investment including interests in a secondplurality of assets; identifying a common feature associated with bothsaid first and second plurality of assets; and identifying a relativeexposure to risk associated with said common feature.
 2. The method ofclaim 1, wherein said common feature is at least one of a common asset,a common industry, and a common issuer of assets.
 3. The method of claim1, wherein said common feature is a common issuer of assets, the methodfurther comprising: modeling a default associated with said commonissuer; and calculating an impact on said first and said secondinvestments based on said default.
 4. The method of claim 1, whereinsaid first and second investments are collateralized debt obligation(CDO) investments.
 5. The method of claim 1, wherein said common assetis at least one of a debt security and a corporate loan.
 6. The methodof claim 1, wherein each of said first and second plurality of assetsare identified by at least one of a CUSIP number and an assetdescriptor.
 7. The method of claim 6, wherein each asset descriptor isnormalized to substantially provide standardized asset descriptions foreach of said first and second plurality of assets.
 8. A method,comprising: receiving information identifying an investor and a firstand a second CDO investment held by the investor; identifying a firstplurality of assets associated with said first CDO investment;identifying a second plurality of assets associated with said second CDOinvestment; identifying each of said first and second plurality ofassets using a standardized asset description; and identifying a commonasset associated with said first and second CDO investments.
 9. Themethod of claim 8, further comprising: modeling a default associatedwith said common asset; and calculating an impact on said first and saidsecond CDO investments based on said default
 10. A method, comprising:receiving information identifying an investor and a CDO investment heldby the investor; identifying a first plurality of assets associated withsaid CDO investment; receiving information identifying a desired CDOinvestment, including a second plurality of assets associated with saiddesired CDO investment; and identifying a common asset associated withsaid desired CDO investment and said CDO investment.
 11. The method ofclaim 10, further comprising: assessing an overall exposure associatedwith said desired CDO investment and said CDO investment attributed tosaid common asset.
 12. The method of claim 10, further comprising:modeling a default associated with said common asset; and calculating animpact on said CDO investment and said desired CDO investment based onsaid default. 13-22. (canceled)